Shifting CFO Market Suggests Future Recruiting and Talent Challenges

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The demand/supply dynamics of the CFO market have changed significantly over the last few years, driven by several trends, including a rising number of CFOs taking early exits, the relative paucity of younger sitting CFOs and the many public companies, large and small, expressing a strong preference for seasoned CFO candidates, according to Peter Crist, chairman of executive recruiting firm Crist/Kolder Associates. Mr. Crist discusses what’s driving these trends, and the implications of these market dynamics, both for companies searching for their next CFO and the talent aspiring to the CFO role. He says that adopting a strategic investment mindset to career development is critical to gaining the skills and experiences companies are looking for in a CFO.

Peter Crist

Q: What are some of the challenges that organizations are facing in recruiting CFOs?

Peter Crist: CFO turnover is running at about 15% per year among approximately 670 companies we track from the Fortune 500 and the S&P 500, with more CFOs taking early exits, retiring in their late 50s instead of their early 60s. The majority of searches we are seeing in the market are in the mid-to-small cap public space, but we’ve never seen so many large public company CFO searches at one time as there are now. And given how relatively few younger CFOs (45-to-52-year-olds) are in those companies and the current five-to-six year average tenure for public company CFOs, we’re anticipating that the supply of seasoned sitting CFOs will trend lower over the next five to ten years.

That presents a bigchallenge to companies because so many are telling us they want to hire a sitting CFO. Both our research and search experience indicate there’s already an imbalance between the demand for the most-desired CFO talent and the supply of that desired talent, and that’s going to expand. That means many organizations, the mid- and small-caps especially, are hard pressed to find a replacement CFO with the toolkit and experience they want.

Q: What is behind these changing market dynamics?

Peter Crist: First, there’s the changing nature of the CFO role, with many companies now expecting CFOs to be strategic and to have a strong operational orientation. Then there is the ri se of the “involved board” in CFO successions, which has been a dramatic change. Boards are becoming more risk averse at the same time they’re feeling pressured by activist shareholders, and that has translated into many boards wanting to hire seasoned public company CFOs. Even in companies with strong talent benches, boards are interested in seeing sitting CFO candidates, and once they do, it becomes hard to resist going after someone who has already sat in the chair at a major public company. They’re telling us they want a strategic CFO who’s operationally oriented, has investor relations (IR) experience, exposure to Wall Street, and experience working with boards.

On the supply side of the market, I think more CFOs are exiting early because of how demanding and pressurized the role has become, combined with the appeal of cashing in their options while the stock market is strong. Finally, more and more CFOs are becoming CEOs.

Q: How are companies looking for a CFO responding to the low supply of sitting CFO candidates?

Peter Crist: A $40 billion market cap company can command a sitting CFO, but as you drop down toward the $10 billion and below public company world, it becomes very challenging. At the least, it means a $10 billion company will likely have to recruit sitting CFOs from a $5 billion company, and a $5 billion company from smaller companies. So we often guide mid- and small-cap companies toward recruiting a group CFO from a big global business, especially from among the handful of companies that have a reputation for doing a good job of grooming their senior finance people for the next level. Those candidates may not have the IR or board experience of a sitting CFO, but they will likely have the operating finance skills and the strategic capabilities from being involved in M&A and having rotations in operating units and other roles at a major global company.

Q: How can organizations position themselves to be able to recruit a sitting CFO or a group CFO from one of those major companies?

Peter Crist: Look at what being a CFO at your company looks like from a candidate’s perspective. The questions CFOs ask us about a new opportunity boil down to five themes: first, is it an interesting or appealing enterprise to be joining—is the company on the rise, in a dynamic industry, and will the candidate find it a good intellectual challenge? Second, who’s the CEO― Do I like the person, will this CEO be a good partner for me? Third, it’s about the board―Is this going to be a good group of people to work with, or is it a divisive environment? Number four is whether there’s potential for more than the CFO chair. Some people don’t want to do anything more than be a CFO, but a lot of the top talent is interested in doing more than finance. Last is wealth creation―these are people who believe they’re capable of moving the dial on a stock, so they want to get enough equity to leverage that upswing. If the answer to more than one of those areas is “No,” that likely means there’s work to be done to create an environment that attracts an outstanding CFO candidate.

Q: On the flip side, what can people who aren’t sitting CFOs do to better position themselves as candidates?

Peter Crist: That’s the $64,000 question right now. We tell aspiring CFOs to get strategic about their career development as early as possible and adopt a talent investment approach in five- year segments. That means thinking about the ROI from the roles they take and skills they build in terms of having the complete CFO toolkit organizations want in their next CFO. First and foremost for finance talent is gaining operational experience because it addresses so many elements of the CFO profile companies are looking for: strategic thinking, leadership, partnering with the business.

Other important experiences include IR, working with Wall Street and the board, capital markets, finance and enterprise transformation activities, and more. The idea is to collect tickets in as many of these areas as possible to show you’re ready to be CFO. But the main message is that mid- and small-cap companies will consider an unseasoned candidate, but only if they have the operating finance element.

If you’re a number two or a group CFO, the best career investment you can make is getting into a CFO chair of a public company of any size. It doesn’t matter if you’ve got a major role at a $40 billion company—if you’re offered the chair at a $1 billion company, take it. You gain experience leading operations and transformational events that show you can create value as a CFO. Short of that, you need experience in a business unit role to demonstrate ability to be an operational leader and partner with the business in general. You’ll also have to fill in gaps in the sitting CFO toolkit you may not be getting, like experience in IR and communicating to Wall Street, having heavy board involvement and working with the capital markets.

If you’re coming from the business or operational side, you’d better have that finance DNA or get that financial experience with balance sheets because no public company board is going to put someone into the CFO chair who doesn’t have the financial acumen.

Q: So is the message to aspiring CFOs not getting that variety of experiences at their current company that it might be time to move?

Peter Crist: The short answer is yes. It’s all about strategically investing in your career. If you don’t think about your career journey toward CFO in five-year clips, then you are not applying the right measurement to think through where you should be by the time you get to 45 or 50 years old, which is the highest leverage point of your career. That’s how we track potential candidates. If you’re 45 and you’ve missed something along the way, then you might very well need to go to a smaller company if it means an opportunity to have a more complete CFO-ready toolkit.

Editor’s note: This article is part of an ongoing series of interviews with CEOs, CFOs and other executives. Mr. Crist’s participation in this article is solely for educational purposes based on his knowledge of the subject, and the views expressed by him are solely his own. This article should not be deemed or construed to be for the purpose of soliciting business for Crist/Kolder Associates, nor does Deloitte advocate or endorse the services or products provided by Crist/Kolder.

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